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How to Play Dow Jones' Surge With ETFs

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The Dow Jones Industrial Average hit a record high on optimism around global trade. The United States reached a trilateral agreement with Mexico and Canada governing $1 trillion worth of trade. The new agreement, called the U.S.-Mexico-Canada Agreement, is expected to be signed by leaders of the three countries in November before moving to Congress for approval.

The dual tailwinds of solid corporate earnings and a booming economy are driving the stock market higher despite the escalating U.S.-China trade disputes. This is especially true as the American economy is on a solid growth path. U.S. GDP growth expanded 4.2% annually in the second quarter, representing the fastest pace of growth in nearly four years. The unemployment rate dropped to nearly a two-decade low of 3.9%, while consumer confidence jumped to the highest level since October 2000. Historic tax cuts, higher government spending and deregulation are fueling growth (read: Consumer Confidence Soars to 18-Year High: 5 ETFs to Buy).

Additionally, the Fed is on track for gradual rate hikes this year, citing that the economy is strong and can handle a tighter monetary policy. The central bank, which began to the tighten monetary policy in 2015, has raised rates thrice this year and is expected to do so again in December. A rising rate scenario also signals a strengthening economy, which is spurring stock market growth.

Meanwhile, total third-quarter earnings are expected to be up 17.9% year over year on 7.3% higher revenues. This would follow 25.5% earnings growth in the second quarter on 9.8% revenue growth, the highest growth pace since 2010.

Given this, we have highlighted some ETFs that could be compelling choices for investors seeking to ride the bull run in the Dow.

SPDR Dow Jones Industrial Average ETF (DIA - Free Report)

The ETF tracks the performance of the Dow Jones Industrial Average. It holds 30 stocks in its basket with highest allocation going to Boeing (BA - Free Report) while other securities hold less than 6.9% share. The fund is widely spread across sectors with industrials, information technology, financials and healthcare occupying the double-digit allocation each. DIA is one of the largest and most popular ETFs in the large-cap space with AUM of more than $22.5 billion and average daily volume of 4 million shares. It charges 17 basis points (bps) in fees per year from investors and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Top and Flop ETFs of September).

iShares Dow Jones U.S. ETF (IYY - Free Report)

This fund follows the Dow Jones U.S. Index, holding a broad basket of 1,246 stocks with none accounting for more than 3.7% of assets. Information technology, health care, financials and consumer discretionary are the top four sectors. The ETF charges 20 bps in annual fees and trades in moderate volume of about 20,000 shares a day. It has amassed $1.3 billion in its asset base and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.    

ProShares Ultra Dow30 ETF (DDM - Free Report)

This ETF is a leveraged play that provides twice (2x or 200%) the return of the Dow Jones Industrial Average. It has AUM of $439.2 million and trades in good volume of more than 615,000 shares on average. The product charges 95 bps in annual fees.

ProShares UltraPro Dow30 (UDOW - Free Report)

This product also tracks the Dow Jones Industrial Average but offers three times exposure to the index. It has amassed $507.4 million in its asset base and trades in a solid average daily volume of more than 975,000 shares. Expense ratio comes in at 0.95% (read: 6 Best Performing Leveraged ETFs of September).

Investors should note that though DDM and UDOW could lead to huge gains in a very short time frame when compared to traditional funds, these run the risk of huge losses in a fluctuating or erratic market.

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